Wednesday, October 30, 2013

Thought of the Day
“Obama and His Generals – A ‘Paul Revere Moment?’”
October 30, 2013

Section 2 of Article II of the U.S. Constitution begins: “The President shall be Commander of the Chief of the Army and Navy of the United States, and of the Militia of the several States, when called into the actual Service of the United States.” Eleven years earlier, in 1776 when he, at the request of the Continental Congress, assumed command of the armies of the Colonies, George Washington recognized his role as being subordinate to that of the civilian Congress. In a speech before the American Legion in 1925, President Calvin Coolidge said: “Our institutions are founded not on military power, but on civil authority…Military power should be subordinate to and governed by the civil authority.”

It is an important power that Presidents have exercised on notable occasions, but almost always for reasons that were militarily based, or because of insubordination. Lincoln fired at least seven generals (including George McClellan twice), before he decided on, in March 1864, Ulysses S. Grant to become commander of all Union forces in March 1864. Grant had proven himself a fighter at Shiloh and a strategist at Vicksburg. Lincoln had been plagued with generals who were reluctant to fight, including McClellan who Lincoln felt should have pursued Lee after his defeat at Gettysburg. A year after his firing, McClellan became the Democrat nominee for President in 1864.

Truman fired General of the Army Douglas MacArthur on April 9, 1951. MacArthur was a brilliant general but an egotist of the first magnitude. He was fired for insubordination, for making statements that contradicted the Administration’s policies of keeping the war in Korea limited. MacArthur immediately retired, returning to the United States after fifteen years abroad. Nine days after being fired, he spoke before a joint session of Congress, giving his famous “Farewell Address” in which he intoned how “old soldiers just fade away.”

In January 2007, President Bush, while taking responsibility for a failed Iraq strategy, replaced Generals George W. Casey and John Abizaid with General David Petraeus, who then led the successful Surge. General Petraeus’ success and popularity made him a potential GOP candidate in 2016. He was made Director of the CIA and was soon marginalized with stories of infidelity; so has disappeared from public view. Sometimes old soldiers get an assist in fading away.

But Mr. Obama appears to have taken the firing of senior military officers to a new level and for reasons that seem to have nothing to do with military expertise. In just the past year, at least ten senior officers – eight generals and two admirals – have been fired. The President has a perfect right to fire general officers who have incurred disfavor. Nevertheless, our country relies on a functioning military. Peace and security are necessary for the orderly process of law. Individual freedom depends on the rule of law. However, the military is considered one of the last bastions of conservativism. Under Mr. Obama, it has become a testing ground for social behavior – the permitting of women in combat and the elimination of the “don’t ask, don’t tell policy.”

No one can tell for sure if any of the firings were politically motivated, but some of the firings seem suggestive. Three of the firings were related to Benghazi. Four Star General Carter F. Ham who commanded the United States African Command during the Benghazi murders was relieved of command in April and retired. He had publically stated that within hours it was obvious that the attack on the compound was not caused by a “video.” Rear Admiral Charles M. Gaouette, in charge of Air Craft Carriers in the Mediterranean Sea the night of the Benghazi assault was also fired. Under testimony, he told Congress he could have launched aircraft to the destination (Benghazi). The Admiral was accused of using profanity in a public setting and making racially insensitive comments. He was later cleared of any criminal violations under the Uniform Code of Military Justice, but his career was over. Army Major General Ralph Baker who commanded the Joint Task Force-Horn at Camp Lamar in Djibouti, Africa was fired after being accused of groping a civilian; however, no sexual misconduct charges were filed. General Baker had claimed that attack helicopters could have reached the consulate the night of the attack.

Marine Corps General James “Mad Dog” Mattis, the former head of Central Command, was fired last January without so much of a heads-up from the White House or the Pentagon. Central Command covers the Middle East, North Africa and Central Asia. General Mattis, a highly decorated Marine, was blunt and direct, in a manner antithetical to the Obama Administration. One of his aphorisms: “Be polite; be professional, but have a plan to kill everyone you meet” was considered politically incorrect and did not sit well with Mr. Obama’s White House. While every executive needs to have those who work for him or her be candid, the line between frankness and insubordination is fuzzy.

In the case of all of these men, some charge had been laid and the individual found wanting. The charges include such alleged indiscretions as “profanity,” “groping a civilian,”, “using counterfeit gambling chips,” “loss of trust,” “adultery” and “improper relationships.” It is reminiscent of Warren Buffett’s recent response to a question about Jamie Dimon of JP Morgan: “If a cop follows you for 500 miles, you are going to get a ticket.” If it is politically desirable to fire someone, an excuse can be found.

Mr. Obama’s vendetta against the military [if that is what it is] did not begin this year. In five years, there have been five U.S. commanders of the International Security Assistance Force (ISAF) in Afghanistan – three Four Star Generals have been fired and one was removed to head up the CIA, and subsequently forced to resign in disgrace: General David D. McKiernan in June 2009; General Stanley A. McChrystal in 2010; General David H. Petraeus was removed in 2011; and General John R. Allen, Jr. in 2012. The current commander, named in February of this year, is General Joseph F. Dunford, Jr.

It may be that Mr. Obama simply inherited a bunch of dead-beat military leaders and had no choice other than to clear ranks. But somehow that argument seems empty when one looks back on how other Presidents handled volatile but talented leaders. “Dead beat” just does not describe this group. President Franklin Roosevelt recognized the talents of such firebrands as General George S. Patton and Admiral Ernest J. King, and he used them – manipulated them, if you will – to his and the nation’s advantage. He didn’t fire them. President Roosevelt considered General Douglas MacArthur one of the most dangerous men in America, yet he recognized his brilliance in the campaign against the Japanese in the Pacific during World War II.

It could also be, having chosen to leave the Iraqis and Afghanistanis on their own, Mr. Obama feels we have a surplus of generals, which is unnecessary and expensive. But somehow I doubt that as well. Regardless of his reasons – and as Commander in Chief he needs none – he has left himself open to speculation that politics may have played a hand. While the President does have power over the military and the executive branch, our system is one of self-government – that everyone in Washington serves at the pleasure of the people, that we operate under the rule of law and that the principle of liberty is our standard.

Interestingly, Mr. Obama’s actions have received very little scrutiny from the press. This is too significant to be ignored. On October 11th, Diane Sawyer, with Martha Raddatz, did a two and a half minute piece, prompted by the firing of Air Force General Michael Carey, which came less than 48 hours after the firing of Navy Vice Admiral Tim Giardina. (While Ms. Sawyer mentioned that there had been nine general officers fired this year, I count at least ten.) Giardina was fired for allegedly using “counterfeit gambling chips;” while Carey was fired for a “loss of trust” and “personal misbehavior.” General Carey had been in charge of America’s Intercontinental Ballistic Missile (ICBM) defense. Admiral Giardina was commander of Submarine Group Trident, with all 18 nuclear submarines with nuclear trident missiles under his command. Ms. Sawyer’s report was more of a whitewash than investigative journalism. She ended the report: “The bad news is that this is happening [behavior unbecoming to an officer]. The good new is that the services are taking action.” But, who are their replacements? Will they feel free to be straightforward and frank with the President? Or will they feel they must toe a political line?

One cannot help wondering, as did one of my correspondents, if this represents a “Paul Revere Moment,” a time when the nation has been put at risk by a President more interested in ideology than in the nation over which he presides. I am not willing to go there at this point. However, there is no question that a strong, but subordinate military is in the nation’s best interest. The world is more dangerous than it was when Mr. Obama took office. The ground gained in Iraq has been lost. Afghanistan is still Afghanistan. Pakistan, with nuclear weapons is fractured. Egypt is no longer the steadfast ally it had been. Syria is on fire and Iran is five years closer to nuclear capability. They are all breeding grounds for terrorists. Relations with Russia have been re-set…backwards. The Saudis have indicated the relationship with the U.S. is not what it was. China is gaining military strength in the South Pacific. As always, we must be watchful and prepared. To assume all is well is foolish.

The greatest threat remains terrorism. Vigilance must be our byword. We live in the world as it is, not as we would prefer it. We are of the world, not apart from it. We cannot live in isolation. We remain the hope for millions of people around the world, but we are also the best representation of freedom and capitalism and thus a target for those who hate our way of life. The most important duty a President bears is the security of the people. If the President, in firing so many generals, has placed politics above the nation’s security, this may well represent a “Paul Revere Moment.” I hope that is not the case.

Monday, October 28, 2013

Thought of the Day
“CEO Pay Ratio and Social Responsibility”
October 28, 2013

“The Social Responsibility of Business is to Increase Profits.” That was the title of an opinion piece in the New York Times in September 1970 written by Milton Friedman…and sounding like Calvin Coolidge. It was received by some with supercilious derision, as many businessmen, in politically-correct mode, viewed their responsibilities more broadly – employees, customers, the community, as well as shareholders. The Business Roundtable in 1981 echoed that conventional wisdom, when they endorsed a policy that shareholder’s returns should be balanced against other concerns.

What both groups overlooked was that attention to employees, customers and the community is meaningless unless a business is profitable. No profits mean no employees and no customers. Conventional wisdom and the Business Roundtable misunderstood Mr. Friedman’s point. The Professor was simply stating the obvious. The concept of focusing on increasing profits should be the primary goal of every business. Ignoring the needs of customers is obviously tantamount to failure, and their needs can only be satisfied with happy employees. Similarly, good relations with the community are second nature for any well-run business. Profits of course come first when discussing social responsibility.

This may seem like an odd segue into a discussion of CEO compensation, a subject I have discussed several times before, but placing the subject in context is important. While ratios between CEO compensation and average worker pay remain inordinately high – especially when severance packages are included – we should keep in mind that ratios peaked in 2000 with the dot-com bubble and have modestly declined. The sharp increase in the ratio in the 1990s followed passage by Congress in 1993 of section 162(m) of the U.S. Tax Code. That bill, you will recall, limited the deductibility of annual executive compensation to $1,000,000. As is so typical when government with good intentions, intercedes unnecessarily, the unintended consequences became antithetical to original intentions – CEO compensation exploded.

The use of options had at least three bad effects, in my opinion, besides the rise in CEO compensation. One, they gave an incentive to management to focus on the near term, at the expense of the longer term. Second, the claim was that, in granting options, directors aligned management’s interest with shareholders, which was untrue as options are exactly that – options – one gets the upside without the downside. Third, options dilute existing shareholders. One can argue that for fledgling companies, options are necessary to attract qualified employees, when cash is in short supply, but when mature companies issue them there are no excuses. The fault lay with boards of directors who are supposed to represent shareholders, not management.

Government has now returned to the scene. In September, the Securities and Exchange Commission (SEC), in a three-to-two vote, proposed a new rule to implement a mandate from the Dodd-Frank law – that U.S. corporations disclose the ratio between the pay of their CEO and that of the pay of the median worker. This is information the SEC deemed important to shareholders; though even proponents acknowledge the real purpose is to shame CEOs.

There are a number of problems with government’s solution. Different businesses operate with different margins; some, like retail and service industries, employ low cost labor and operate with low margins. Other businesses rely on highly skilled employees. There are businesses run by founders, where the CEO has a substantial stake in the company. If government begins intimidating and penalizing entrepreneurship the effect will be to keep good companies private. This is another example of government trying to push square pegs into round holes.

I agree, though, that CEO compensation is often excessive, but I worry about the consequences of government-mandated rules. First, an arbitrary ratio provided by a government bureaucrat is likely to have no relationship to a business’ margins or returns. Last April, Bloomberg completed a study of the 250 S&P 500 companies with the highest ratios, ranking them in terms of a pay ratio which they (Bloomberg) calculated based on the U.S. government’s industry-specific averages for pay and benefits of rank-and-file workers. While it was an estimate, the rankings were telling. Of the top ten companies with the highest ratios, seven were either retail or food service businesses, with average worker pay & benefits of $46,306. The bottom ten of those 250 companies included four technology and three manufacturing businesses, with an average worker pay & benefits of $56,996, or 22% higher than the companies with the highest ratios.

Second, there will be a natural tendency for companies to work around the ratios – firing low wage earners and replacing them with temporary workers whose income would not be counted, or by deferring CEO compensation until the individual left or retired. History, however, does provide examples of directors favoring CEOs while displaying contempt for shareholders, not unlike the attitude of elected officials towards taxpayers. Hank McKinnell, former CEO of Pfizer and who oversaw shareholder losses of $140 billion during his watch, was awarded $213 million when he left in 2006. Angelo Mozilo, the former CEO of Countrywide Credit, was paid $124.7 million the year before the company went bankrupt. A few rotten apples spoil a barrel.

Bloomberg estimated that the hiring of Ron Johnson’s team at JC Penny cost shareholders $170 million, while shareholders lost more than half the value of their stock during his seventeen-month tenure. However, can we feel comfortable that new rules from Washington will prevent this from happening in the future, or will lawyers find their way around such rules?

In attempting to peddle a one-size-fits-all answer for a problem that exists, but is not rampant, is that it also does not allow for exceptions. For example Louis Gerstner spent ten years as CEO of IBM, during which time he added greatly to his wealth. But he turned around a company whose stock price when he arrived was exactly where it had been twenty-five years earlier. During his ten years at the helm, the stock went from a (split-adjusted) price of about 11 to 78. Stock performance over several years is a very good measure of a CEO’s value.

In a recent Bloomberg interview, Leo Hindery, businessman and Democratic activist, suggested that Congress establish a ceiling for individual CEO compensation at a “reasonable” multiple of average employee compensation and that loopholes be closed. A definition of “reasonable” would likely consume Congress for months and require a bill measured in the thousands of pages – unreadable by all, except a few lawyers. It would not work. As for closing loopholes, I am always for simplifying and lowering tax rates. It is in the best interest of everyone, except lawyers and accountants. But I somehow suspect Mr. Hindery, now that he has his, is less interested in lower rates, than in just closing loopholes.

Unfortunately there are no easy or obvious answers; though we can take comfort that the trend seems to be down, not up. That can be attributed to a decline in the excessive use of options that characterized the 1990s. The institutionalization of the market has also played a role. Forty-six years ago when I entered the business, most shares were held by individual investors. They typically bought using the Peter Lynch principle of buy what you know. Absolute, not relative, performance was what mattered. Today, owners of capital are distanced from management by intermediaries. Many of those intermediaries – professional money managers – have a real interest in the companies they own, but others do not, so treat stocks as commodities. Stocks were held for much longer periods in those distant days. Average holding periods, according to Jeff Kleintop of LPL Financial, have gone from eight years in the 1960s to five days. The advent of High Frequency Trading and the explosion in ETFs account for much of that change, but the point being management’s relationship to the real owners of their stock is far different from what it had been several decades ago, and that is unlikely to change – unless Congress makes long term investing far more attractive – which they should.

The answer lies not in Washington, but in the restoration of a moral sense that conveys to boards of directors that their responsibility is as fiduciary to the thousands of small investors who are the real owners of the business, not to management. Washington can play a helping hand, in setting an example by taking responsibility for what happens under their watch. Society can play a hand in being more self-reliant and less dependent.

That, then, brings me to my final point. A discouraging aspect of the world we inhabit is the absence of character and moral integrity. The assumption had always been that when things go wrong, responsibility would be taken. That is not the world we live in. Managements rarely utter mea culpas when results are poor. Our representatives in Washington have become masters at shedding responsibility. It would have been funny, had the situation not been so dire, to watch HHS Secretary Kathleen Sibelius place blame on Republicans, as she squirmed under questioning, for the disastrous start to ObamaCare. Just as elected representatives are supposed to be mindful of the interests of the people, boards of directors are supposed to watch out for the interests of shareholders. Our capitalist system is based on the theory that honor and character are integral to those who represent us, both as taxpayers and as shareholders. When that disappears, our democratic capitalism is threatened.

Reality is that businesses need to make profits before all else. That is their social responsibility. CEOs are critical to ensuring that goal. They should be paid in accordance with their performance, measured by profitability and how well they have done for shareholders over a meaningful timeframe. Directors’ responsibilities are to shareholders, not mankind. Government plays a critical role in our lives, but this is not their place. It should bug out of this arena.

Wednesday, October 23, 2013

Just as Gertrude Stein said about roses, a shakedown is a shakedown is a shakedown no matter its name. In the Middle Ages, Scottish chieftains from the Lowlands demanded protection money from English settlers along the border. Those payments were known as blackmail and the word, derived from those payments, became part of our lexicon. Extortion involves the verbal or written instillation of fear that something will happen to the victim if he or she does not comply with the extortionist’s demands. Greenmail became common in the 1980s. It was the practice of purchasing enough shares in a firm to threaten a takeover, thereby forcing the target firm to buy those shares back at a premium. The process made a lot of money for a small number of people. It was, of course, shareholders, not management, who had to ante up the money.

Even though such activities are either illegal or, in the case of greenmail, ethically questionable, government has entered the fray. Money and politics, like peanut butter and jelly, have always been inseparable. The only change has been that the money has become much bigger. How many politicians do you know have entered politics with a modest net worth, yet exited a few decades later with substantial assets? The game of extortion, in the political arena, has been played in at least two ways. In Tuesday’s New York Times, Peter Schweizer had an op-ed, “Politicians’ Extortion Racket.” He wrote of using the legislative process to extract money for campaign war chests. He wrote of two tactics, the “tollbooth” and “milker bills.”

For the former, he used the example of Speaker of the House, John Boehner. Mr. Boehner, the author claimed, had delayed scheduled votes, while waiting for checks. “In 2011,” Mr. Schweizer wrote, Speaker Boehner “collected $200,000 in donations from executives and companies in the days before holding votes on just three bills.” The money was collected over a forty-eight hour period.

“Milker bills” are designed to “milk” donations from threatened individuals or businesses. Mr. Schweizer cited the example of President Obama being able to “score big” in 2011 over two antipiracy bills that pitted the President’s supporters in Silicon Valley who opposed the bills, against his allies in Hollywood who supported the measures. When the President indicated that he would “probably” sign the legislation, which pleased Hollywood, the tech industry poured millions into Mr. Obama’s coffers. Despite Hollywood having donated $4.1 million by the start of January 2012, it wasn’t enough. On January 14, 2012, Mr. Obama said he had problems with the bills. Neither was signed. Schweizer quoted a film executive who spoke anonymously to the Financial Times afterwards: “He [Mr. Obama] didn’t just throw us under the bus; he ran us down, reversed the bus and ran over us again.”

The other form of extortion used by government is what the Justice Department is doing to the financial industry. When a federal prosecutor decides to pursue a particular individual or business, he has two significant advantages – the Press, which loves any exposé, and an unlimited source of funds, all supplied by taxpayers. The defendant, presumably presumed innocent, is immediately placed in a defensive role and must use his own money or that of his business to defend him or herself. This is not to argue that all accused are innocent. Wall Street has its share (and more) of weasels and crooks. But the number of indictments that ultimately get overturned is striking. In the meantime, the accused has had his character impugned and is out a lot of money, while the prosecutor has gone on to bigger and more important offices.

The Department of Justice’s (DOJ) shakedown of JP Morgan for an estimated $13 billion is only the latest example. Three quarters of the funds to be collected are supposed to be redistributed to affected investors and homeowners in cities like Detroit. The alleged crime had to do with the bank’s issuance of mortgage-backed securities prior to 2008, allegedly misleading Fannie Mae and Freddie Mac about the quality of mortgages they were issuing. The mortgage securities of interest were issued by Bear Stearns and Washington Mutual before the two firms that went bust. While JP Morgan did not have to bail out the two failing institutions, the bank was strongly urged to do so by the Treasury Department and the Federal Reserve. Mr. Dimon did negotiate, in the case of Bear Stearns, a $30 billion guarantee against poor assets – a guarantee backed by taxpayers. Nevertheless, the appeal to his conscience worked and JP Morgan made the acquisitions. Now, the bank is being penalized for having done the government’s bidding. Of course, that happened under a prior Administration.

Again, my point is not to excuse JP Morgan, or more accurately the people who run the bank. The bank has made some mistakes, but on balance has handled itself well. They obviously took undue risk in allowing Bruno Iksil (the London whale) to make the trades he did. A $6 billion loss is big, no matter the size of a bank. I doubt that Mr. Dimon, had he been the managing partner of a private firm, would have allowed Mr. Iksil to speculate so wantonly with his [Mr. Dimon’s] money or that of his partners, but when the money belongs to shareholders, a different mindset takes over. In any respect, Mr. Dimon has been well-compensated for his efforts. Since becoming CEO of JP Morgan Chase on December 31, 2005, the stock has appreciated 38%, a compounded return of 4.1%, while Mr. Dimon has been paid in excess of $100 million and owns about $300 million of the stock.

It is important to keep in mind that shareholders, as owners, are liable for any payments. The bank has reserved $23 billion for fines and legal fees, about 11% of the market value of the shares. (As an aside, but as an indication of the costs to shareholders – and payoffs to lawyers of government lawsuits – a Bloomberg survey in August found that the six biggest banks had spent $103 billion on legal costs since 2008.) Keep in mind, those reserves set aside by JP Morgan belong to the shareholders. As an owner of 5.8 million shares (roughly 0.15% of the outstanding shares), Mr. Dimon will be part of the payment process. His share of the $13 billion would amount to about $1.9 million, or roughly one month’s salary. That doesn’t appear very punitive.

No matter how we term them, egregious settlements are still outrageous. The DOJ is in talks with a hedge fund manager to pay – in this case from his personal funds – $1.3 billion. That does seem punitive. Last January, they extracted a little over $10 billion from Bank of America. The DOJ is unique in that it is the department of the Executive branch that comes closest to operating at a profit. In 2012, their budget was $28.2 billion – a little less than 2012 annual revenues at DuPont. However, it wasn’t enough to prevent guns from being shipped to Mexican drug dealers, but it did allow them to snoop on reporters. That same year, 2012, the DOJ bragged in a press release that the efforts of their Financial Fraud Enforcement Task Force resulted in a $25 billion settlement between them and 49 states and five banks – Bank of America, JP Morgan Chase, Wells Fargo, Citigroup and Ally Financial (formerly GMAC). Additionally, for the same year, the DOJ secured $4.9 billion in cases involving fraud against the government.

The DOJ would have us believe it is free money. It isn’t. It is shareholders who are paying the fines, or “hush” money, and taxpayers who are supporting the prosecution. Since more than half of Americans own stock through pension or retirement plans – generally the same half of Americans that pay federal income taxes – the process can be seen as another tax on hapless citizens, or of robbing Peter to pay Paul when Peter and Paul are one and the same.

Our government is addicted to spending but short on tax revenues; thus seeks new sources of income. Thirteen billion dollars from JP Morgan, if that becomes the final number, is just over a day’s spending by the federal government, but does represent about 2% of this year’s expected deficit. While the alleged crimes occurred in the mists of a murky past, the government’s motivation is obvious – punish those who have done wrong, especially if they are of a politically incorrect persuasion (in the eyes of the Administration), while recognizing any cash received will be useful. But, it should be remembered that when they claim to punish institutions, they are really penalizing millions of innocent people, stockholders and taxpayers alike. The methods, similar to those of your average, everyday extortionist, combine intimidation with threats. As those who have been exploited know, the government can make life difficult for a banker or a hedge fund manager, especially if the target has raised the ire of the Administration.

Calvin Coolidge, the 30th President of the United States, was noted for his thrift. He recognized that public servants were there to serve the public. He recognized that the money government spent belonged to the taxpayer and that they [government] had a fiduciary responsibility to treat those funds with respect. Coolidge was a believer that the property of the country belongs to the people of the country: “They do not support any privileged class…They ought not to be burdened with a great array of public employees.” In his 1925 inaugural, Mr. Coolidge said: “The collection of any taxes which are not absolutely required, which do not beyond any reasonable doubt contribute to the public welfare, is only a species of legalized larceny.”

Unfortunately such thinking, as sound as it is, harkens to a time when dependency on government was far less, character counted and people were held responsible for their actions, not only because of laws and rules, but because of an inherent and integral moral sense of right and wrong. In the long history of our country, money has always played a role in politics. What has changed are the arrogance of politicians who now represent the privileged class that Mr. Coolidge warned about, the dollar amounts involved, the absolute size of hedge funds and banks, the ownership of investment banks and the flagrant fiduciary abuse of the system by politicians and their appointees, in resorting to shakedowns more common to the criminal element in our society than to the public servants they are supposed to be.

Monday, October 21, 2013

Sydney M. Williams
Thought of the Day
“Republican Agonistes, or Carpe Diem?”
October 21, 2013

“For want of a nail,” goes the old English proverb, “…a kingdom was lost.” Poor tactics can have unintended consequences. Defunding ObamaCare may have been a noble cause, but it served as a distraction to the far more important war in which the Left and the Right are engaged. The crux of the problem is the size of government and its role in our everyday lives. ObamaCare is symptomatic, but is far from the only problem.

Kimberley Strassel, in Friday’s Wall Street Journal, aptly compared the head-long charge of Tea-Party Republicans, in their bid to defund ObamaCare, to the “brave 600” of the Light Brigade who rode bravely, but futilely, against the Russian guns at Balaclava during the Crimean War. As she ends her op-ed: “Brave charges mean little if they aren’t followed by victory.” In an editorial in last weekend’s Barron’s, Thomas Donlan noted that the stock market considered the shut-down and the threat of breaching the debt ceiling a non-event. In fact, given the rise in federal borrowings on Thursday night, it would be fair to say the ceiling had already been violated and the market knew it, even if the media did not. Between September 30 and last Wednesday afternoon, the S&P 500 was up 2.4%, better than its average monthly gain this year – one of the best years on record! And this despite Mr. Obama doing his best to talk the market down.

Regardless of Republican’s defeat in attempting to defund the program, ObamaCare is a mess. Its original purpose may have been well-intentioned, but its roll-out has been a disaster, despite three years of planning. Logging on for most people has been nearly impossible, in part because individuals are required to supply personal data that then must be verified to determine eligibility for subsidies. When someone does get on-line they find that the insurance costs on 43 of the state exchanges, including Connecticut where I live, are higher than existing plans. The reason has to do with required provisions that many people don’t want or need. Medicare may not be eviscerated, but it appears that reimbursements will be reduced, effecting providers and, therefore, care. Taxes have already been raised and will rise further. The very fact that government employees, including our House and Senate representatives do not have to comply by the same rules as the rest of us is criminal – a fact that Republicans should exploit. There was a time when public servants were just that – public servants. Today, the impression our leaders give is that we work for them – which we do, in that many of us must spend the first few months of every year laboring only to pay the salaries of government employees.

Nevertheless, there is no question that the old healthcare system was unfair, expensive and didn’t work very well. Corporate plans were not transferable; so those with preconditions were left uninsured when they left their jobs. While health insurance is a deductible expense for corporate plans, it is not for individuals. Consumers, in corporate or government plans, have little concept of the costs of drugs, procedures, or even doctor visits, apart from a nominal co-pay. Those plans were essentially “one-size-fits-all.” Uninsured people would go, at great cost, to emergency rooms. Insurance companies were prevented from competing across state lines. It was a system begging for reform. But instead of creating a system that incorporated the best of the private sector – such as allowing insurance companies to compete across state lines, encouraging the development of clinics to compete with emergency rooms and allowing individuals and families to tailor-design insurance plans for their specific needs – Mr. Obama and his team decided that only a system with government-established exchanges would do, mandating what would and would not be covered and what reimbursement rates would be. Setting prices by fiat does not have a happy history.

ObamaCare deserves to sink from the very weight of its complexity, but attempting to defund it at this time was a poor tactic. A consequence was that Democrats appeared as the sensible, caring and sane Party, with Republicans appearing their opposites. However, if a sufficient number of young, healthy people with no need for insurance do not sign up, ObamaCare will collapse.

Republicans face a considerable foe in the person of Mr. Obama and his minions. He is capable of saying what all want to hear: In conciliatory tones he claims the middle ground, talking about the unsustainable costs of entitlements; yet he increases the reach of government. He claims to be the “cool” guy in the room (besides being the smartest) – the individual who can reach across aisles; yet when he claims Republicans have put a gun to the head of the American people he belies his Chicago political roots. America has not been this divided in 150 years. Mr. Obama’s two legacy programs passed Congress without a single opposition vote. He can, so he has told us, cause the waters to recede and the earth to cool; yet fewer people have jobs than when he came to office, and the Middle East is more dangerous than five years ago – and the earth is no cooler. Yet, he seems invincible. When challenged, the challenger is often accused of racism, as we heard from that eminent political commentator Robert Redford last Thursday and as Vice President Joe Biden declaimed a year ago: “Republicans will put y’all back in chains.”

Following a defeat such as Republicans experienced, it is common to self-examine one’s actions, to reassess one’s priorities. But after a few hours of navel-gazing and wallowing in self-pity, Republicans should focus on the road ahead. We live in an ‘Age of Lois Lerner’ (to borrow a phrase from Peggy Noonan). Ms. Lerner, in subverting a supposedly non-partisan federal agency into a political ally, reflects our New Age. It is frighteningly reminiscent of Nixon’s paranoid White House forty years ago. Mr. Obama learned from the writings of the first community organizer, Saul Alinsky. Mr. Alinsky’s 1972 book, A Pragmatic Primer for Realistic Radicals included twelve rules for radicals. Rule number twelve: “pick the target, freeze it, personalize it, and polarize it.” Mr. Obama is a master of that tactic. It is what he and his team do. As a strong anti-colonialist, Mr. Obama’s vision is to diminish the world’s perception of the United States. As a believer in the goodness of government, his desire is to build a welfare state with national health and a national kindergarten. It is the “Life of Julia” he sees as the goal.

In this environment, Republicans should have the upper hand, but they don’t. They must present a unified, forward-looking, positive agenda. Despite a stock market that is trading at all-time highs, the mood of the country is one of uncertainty and discontent. Confidence is low. Corporations continue to sit on cash and banks aren’t lending. GDP growth has been subpar. The labor situation is dismal, with minorities and youth having suffered more than the rest. Total employment is still three million jobs below where it was when Mr. Obama took office. Business is uncertain given the ramifications of ObamaCare. Regulations seem aimed especially at small businesses. Banks and hedge funds are being blackmailed by an aggressive justice department. (We should remember that when a public company is forced to pay $13 billion, it is the owners, the tens of thousands of shareholders, who are penalized, not management.) The future of tax rates is unknown, other than Mr. Obama has promised to raise them. An Administration that claimed to be the most open on record has been shut tighter than an unshucked oyster.

Republicans, in my opinion, could offer a three point program:

1) Focus on economic growth. A faster growing economy gets people back to work and increases tax revenues. Corporate taxes should be lowered or eliminated; the individual tax code should be simplified and rates lowered, and regulations should be eased. Corporate funds held overseas should be allowed to return to the U.S. without penalty. Right-to-work laws should be encouraged, not demonized.

2) Fiscal reform begins with entitlement and tax reform. Entitlements consume about two thirds of our budget and are growing at more than twice the rate of discretionary spending. A means test for Social Security should be deployed and the means test for Medicare should be expanded. The age for retirement should be raised to conform to life expectations. Individual retirement and healthcare accounts should be encouraged with lower tax rates, especially for lower income workers. Making people more responsible for their well-being is a positive, not a negative. Federal spending should be held in check. There is no reason why federal employment must match the growth in GDP or population expansion, as Nobelist Robert Shiller oddly suggested last week. Instead, the focus should be in the use of technology to improve productivity. It is worth remembering that the decade of the 1920s saw federal spending increase by less than one percent, from $11.3 billion to $11.4 billion, while nominal GDP rose 50% to over $100 billion. Unemployment stood at 11% when Harding took office in 1921. Eight years later when Coolidge left office, unemployment was 1.9%. Government is not the driver of growth.

3) Immigration reform should be part of a Republican platform. The enormous benefits immigrants have brought to our country and its economy must be acknowledged. Criminals and terrorists must be prevented from entering our borders, but we should be more lenient and encouraging of those who attend and graduate from our universities. All immigrants who become citizens should be required to speak and read English, not just for their safety and to make it easier for them to participate in society, but because such knowledge is necessary for success. They should understand the duties and responsibilities of citizenship.

There are other programs that others might choose – terrorism and national security versus individual rights; foreign relations; monetary policy; education – but Republicans need to become the Party of Ideas and Hope. They must play offense, not defense.

While Republicans were disappointed with the events last week, there is no experience from which one cannot benefit. In 2008, after voting to shut down the government rather than extend the debt ceiling in 2006, Senator Obama called the continued Bush deficits “irresponsible” and “unpatriotic,” even though deficits were far smaller than today. Are the voices raised by Republicans today so different from their colleagues across the aisle six or seven years ago? Things change; Republicans must begin to control the agenda, be more persuasive as instrumentalists for positive change – change that will truly help the poor, the young and those in the middle – not just talk, but deeds. The agony of Republicans is one that both Parties and all individuals have gone through in the past. Struggles provide opportunities. This is theirs to seize.

Friday, October 18, 2013

It is not often that I agree with François Hollande, but I do when he warns of the growing popularity of regressive nationalists like France’s National Front Party. Where we differ is that I believe he, with his emphasis on the social welfare state and his tolerance for the intolerance of Muslim extremism, bears some of the responsibility for the counter-cultural rise in nationalism and extremism in France and throughout much of Europe.

Much of the backlash in Europe is anti-Muslim in nature. Other aspects have to do with a reaction to a welfare system that is proving costly and detrimental to economic growth. Yet, it has taken on other, more ominous tones. According to reports from two American conservative news sources, World Net Daily and the Washington Free Beacon Press, there has been a recent rise in anti-Semitism in Europe. The results of a recent Washington Free Beacon Press poll of 5,100 European Jews indicate a majority are experiencing a rise in anti-Semitism. As for the cause, 27% of respondents said that Muslims were responsible, 22% blamed it on right-wing views and 19% laid blame on leftt-wingers. It is interesting that those numbers lay more blame for the anti-Semitism on extremists from the Left and the Right than on Muslims. In times of economic and social duress, people search for someone to blame. It distantly echoes the 1930s.

M. Hollande’s warning came after the National Front won a decisive victory in Brignole, a small city in France’s southeast not far from Toulon. More compellingly, a recent Ifop (Institut Français d’Opinion Publique) poll in Le Nouvel Observateur gave the National Front 24% in next year’s elections for the European Parliament, five points ahead of Hollande’s Socialists and four times what they received in the last European election in 2009. France is not alone. Golden Dawn, Greece’s neo-Nazi party is now the third largest in Greek politics. The Freedom party in Austria garnered 21.4% of the vote in September’s election, boosting its share by almost four points. Vlaams Belang in Belgium, which advocates the independence of Flanders, saw gains in last year’s regional elections. The UK Independence Party is expected to do well. Geert Wilders, the Dutch anti-immigrant and anti-Muslim populist, is running strongly in opinion polls.

It is the center-left that is losing ground. Gains by the far-right in Europe have been nearly matched with gains from the far-left. The leftwing Syriza movement in Greece is expected to do well. In Germany, the far-left Die Linke, composed of disaffected social democrats and former East German communists, is now the third largest in Germany’s Bundestag. The Communist party in the Czech Republic has high expectations for the upcoming national elections.

We should never forget that the line that stretches from the far left to the far right is not linear, it is circular. There was very little difference between Communism and Fascism. Both were totalitarian. Both were intolerant. Both saw the state as interventionist in the economy. Both murdered millions of their own people. The same is true today. Increased nationalism, xenophobia, deep recession and a desire for even more state intervention characterize both extremes.

At its heart, most politics is economic. When economies are doing well, with people happily employed and making good incomes, goods readily available, inflation moderate and the government responsive, but subservient, to the wishes of the voters, dissension is typically non-existent.

But that is not the case today. Economies are struggling and unemployment is high. Governments, on which so many depend, have become fiscally shaky. Much of what we see in Europe appears to be a pendulum swinging back from the unintended consequences of the welfare state and a political correctness that causes states to focus on the trivial as opposed to the imperative. For sixty years an increasingly patronizing government assumed more and more responsibility for the lives of its citizens. The relationship between the people and the state is symbiotic. Governments can only live off taxation of or expropriation from the private sector. The larger government becomes the more money it demands; therefore, the less the private sector has for its own purposes. In large part, and with exceptions, that has become the fate of Europe. The consequence has been the backlash we are now experiencing.

In the early 19th Century, a Swiss-born French writer, Benjamin Constant, published an essay, “The liberty of Ancients Compared with that of Moderns.” The essay has been reprinted by the Liberty Fund, Inc. It can be found on their website, www.libertyfund.org, or by Googling the author and the name of the essay. It was written almost two hundred years ago, yet its lessons are enduring. M. Constant, argued that ancient liberty was a collective freedom, allowing all citizens to participate, to deliberate in the public square – the majority ruled; there were no minority rights. The individual was subject to the authority of the community. Modern liberty gave the individual the right to express his own opinions (women at the time were not accorded the same rights), to purchase and dispose of property, to come and go without accounting for one’s motives. “Individual liberty,” he wrote “is the true modern liberty. Political liberty is its guarantee, consequently political liberty is indispensible.” The problem M. Constant saw was the gradual but insidious surrendering of individual liberty to the grasping hands of the state. If we become too absorbed in the pursuit of our own pleasures, simultaneously asking more of the state in terms of security and comfort, we risk giving up our right to share in political power. M. Constant goes on: “They [political leaders] are so ready to spare us all sorts of troubles, except those of obeying and paying! They will ask of us: what, in the end, is the aim of your efforts, the motive of your labors, the object of all your hopes? Is it not happiness? Well, leave this happiness to us and we shall give it to you.” Those words provide meaning and should sound a warning to all Americans, as we consider the direction Mr. Obama has chosen for our country.

Barry Goldwater in 1964 was equally admonitory: “Those who seek absolute power, even though they seek it to do what they regard as good, are simply demanding the right to enforce their own version of heaven on earth.” It is worth reminding ourselves, however, that “democratically” elected leaders, like Adolph Hitler in 1933, who subsequently grabbed absolute power campaigned by appealing to emotions and nationalism. He made promises, but he never ran on the notion that absolute power was the goal.

Constant’s words are a reminder that very little in life is new – that the problems in Europe and the trends in the United States are repetitions of previous histories. Governments operate most efficiently when they compartmentalize their citizens, increasing rules and making people more dependent and subservient. They do so for reasons of self-aggrandizement and to increase personal power. Political correctness has made officials fearful of offending and punishing those who deliberately deride local customs and violate laws. A desire to be seen as benevolently tolerant has allowed Muslim extremists to flourish. The effect has been segregation and impediments to integration. Immigrants should be welcomed, but they should understand that the laws, rules and customs of the countries to which they are immigrating must be obeyed, even as they may be different from the ones of the country they are leaving. And immigrants should always be encouraged to become part of the community – not isolated to fester.

A study earlier this year from Chatham House, an independent think tank for international policy based in London, found that populist extremist parties (PEPs) are one of the most pressing challenges facing European democracies. However, their study showed that those PEPs that are allowed to participate in the wider political system tended, over time, to move away from extreme positions. Inclusion, they claim, works. Mainstream political parties, according to Chatham House, should also ensure that they are part of their local communities, with links to local groups and forums. They admit that economic grievances over jobs and housing are part of the cause. But the greater fear, they worry, stems from those who are susceptible to the siren call of extremism – that immigration and minority factors threaten national culture.

It may be that it is impossible to prevent the bob of a pendulum from retracing its arc – that, as Newton explained, to every action there is an equal and opposite reaction. Nevertheless, the backlash that appears to be occurring in Europe and finding its place in extremism is something for which we should all be concerned. Mr. Goldwater also proclaimed, correctly, that “extremism in the defense of liberty is no vice.” But what we are seeing in Europe appears to have an uglier visage. In part, it may be a natural reaction to a socially overly-paternalistic state and to a political-correct state that has stepped beyond the borders of commonsense and civility. For that, leaders like M. Hollande should take responsibility, but when extremism is motivated by hatred and prejudice it risks emulating those dark days of the 1930s.

Wednesday, October 16, 2013

America is under attack and is being marginalized by those whose history on human rights is a violation of human decency. “America is the Great Satan,” claim Muslim extremists, as they disingenuously justify the terrorist actions they perpetrate on the West in general and Christian churches in particular. They care not who they wantonly kill. From China last week came a statement issued by their official press agency, Xinhua: In a “befuddled” world, it is time to start considering the building of a “de-Americanized world;” so that “the international community could permanently stay away from the spillover of the intensifying domestic turmoil in the United States.”

It comes as no surprise, therefore, that pundits and op-eds declare America is in decline. Our President went to Cairo in 2009, where he welcomed the Muslim Brotherhood and apologized for America. Our foreign policy, if not in shambles is under duress. American exceptionalism is increasingly questioned by many, including Americans.

While man stopped being a hunter and became a gatherer about 9000 years ago, he killed more of his own in the last century than in any previous hundred year period. The intervening thousands of years saw villages and towns gradually take shape. Language and religious beliefs developed. Territories were staked out. Boundaries were drawn. Economic specialization and social stratification followed. Man was becoming “civilized.” Nevertheless, fighting was constant. They fought over everything, from competing chiefs to religion, from land and property to concepts of freedom and government. In that he is dependent upon others, man is social; but he is also territorial and nationalistic. He associates with specific groups, even when randomly assigned. Studies have shown that when school children are divided into two teams, they become very aggressive in defense of their own and antagonistic toward the other. Hate and love are two sides of the same coin, but hatred can last longer.

While armed insurrection has been absent in the United States for 150 years, we see some of this divisiveness and allegiance in the battles in Washington. Neither side seems capable of expressing empathy for, or understanding of the other. Amidst this infighting we sometimes forget who we are and that America has been a fortunate nation. Western expansion was an option for Americans, but not for Europeans. We fought a revolution to become free, to pray as we chose, speak as we saw fit and to govern ourselves. We are willing to pay taxes, but only with representation. A few decades after the Revolution, we fought a civil war, to maintain the union and to ensure that the concept of freedom was universally prescribed. Some of the latent animosities that led to that war are still with us. The rise of the Tea Party and the counter-cultural Occupy Wall Street represent two movements with little in common, other than what is most important – both are American.

Since the end of World War II, the western world has generally lived in peace. For Europe and Japan, the horrors, deaths and costs from the thirty-one years between 1914 and 1945 were so great that war was no longer an option. In securing that peace in 1945, the United States played a key role. We provided a large part of the armaments used by the Allies in the Second World War, and then we financed the reconstruction of Europe and Japan. We did it not only out of concern for the well-being of the millions of displaced people; we did it to rebuild their economies, so that they would become trading partners, which they have. The consequence has been a world grown richer and freer.

But the world is not safe today. As a nation of free men and women we are a threat to those who would enslave women and keep their subjects in ignorance. Freedom to pray is an anathema to Muslim zealots. And moderate Muslims seem incapable of subduing their more violent and intolerant brethren. Without our guidance the Middle East appears devolving into chaos. Perhaps the UN can assume the role the U.S. has played, but their history doesn’t provide much confidence. It seems that the world is marching blindly toward a conflagration, with Iran, Pakistan, Afghanistan, Iraq, Egypt, Yemen, Syria and others lined up against the West and her democratic ways. Israel stands increasingly isolated. Africa is an area rich in natural resources, but also in violence – violence which stems from those same resources, religion, anti-colonialism, territory and tribalism. An absence of global leadership does not help the situation. North Korea is also a threat, but as a client-state of China they are on a tighter rein than rogue nations in Africa and the Middle East. Where is America when the world needs her?

As a singular – if not exceptional – nation, that has become unequaled in a military sense, and the world’s largest economy and richest nation, it is not surprising that we have been singled out for hatred. Freedom and financial success are an anathema to those who would keep their people enslaved. When we apologize for our successes, it is unsurprising we are treated with disdain. But what we should keep in mind and never forget is that the United States has generally been a force for good in the world. We have not been perfect. There is much in our past for which we should deservedly feel shame, but when one compares our history to that of any other nation, we stand alone.

A review in Monday’s Wall Street Journal of a family memoir by David Laskin, The Family, tells the story of five generations of a Russian Jewish family. It is heart-rending to read of those people, knowing that those who decided to stay in their homeland, or in Europe, were virtually all killed – exterminated in Hitler’s gas chambers; whereas those who emigrated to the United States survived and, in fact, thrived. Edward Kosner, the reviewer, ends his report: “The survival of the Jews has hinged in some sense on the establishment of the state of Israel. Yet it is the U.S. that has given the Jewish people the secure homeland they have sought since the destruction of the Temple, where Mr. Laskin’s ancestors may well have been inking in Torah passages in days lost to memory.”

That the United States has been a beacon for those yearning to be free is obvious to anyone who has the briefest knowledge of our country. It was also the subject of Bret Stephen’s op-ed in Tuesday’s Wall Street Journal. He discusses the Nobel prizes and in which countries the recipients live. Apart from Israel, which with 0.2% of the world’s population has received 20% of the awards, no one comes close to the United States. “The secret of America’s Nobel sauce isn’t hard to understand,” Mr. Stephen’s wrote: “an immigration culture that welcomed everyone from Ronald Coase (from the UK) to Subrahmanyan Chandrasekhar (from India) to Martin Kaplus (from Nazi-era Austria) to Elizabeth Blackburn (from Australia).” Immigration is an issue that generates strong feelings on both sides. In my opinion, we should err on the side of being more generous in terms of offering asylum and in terms of encouraging those who want to come here, especially those who come here to attend our colleges and universities. It sounds hackneyed, but the United States was built by immigrants. More than anything else, their presence makes us different from and more welcoming than other nations. They provide energy to our workforce and intellectual ability to our accomplishments.

We should never stop learning and we should never stop trying to improve our condition and that of those around us. We should do so humbly and with civility. We should be modest as to our past achievements and view optimistically the future. But there is no need to apologize for our nation, especially to those who continue to violate human rights. At the same time, there is every reason to remain alert and prepared against those who would do us harm. And we should never forget that the world has been made far safer and much wealthier because of our presence. If the word “exceptional” is bothersome, we are at least “singular.” There is no other country like ours. I was mortified and disgusted in recently watching a segment on MSNBC, when a group of five or six people sat around discussing America’s exceptionalism. The best they could come up with, amidst their giggles, were French fries, fast food and music. There was no mention of our history, or of our Constitution and Declaration of Independence. There was no mention of the immigrants we had welcomed, nor of the wars we had fought on behalf of others. There was no mention of the Marshall Plan, nor the Four Freedoms President Roosevelt immortalized in his address to Congress in early 1941. Instead, they appeared to hang their heads in shame for being Americans and to laugh at the silliness of those who care.

Patriotism, untethered, can morph into a dangerous form of nationalism. But a little patriotism is good. Throughout its history and on balance, America has been a force for good, something that should fill us with pride, not shame.

Monday, October 14, 2013

Paul Ryan’s call for fiscal sanity in early 2010 with his “Roadmap for America’s Future” was a rare voice of reason that periodically emanates from the asylum that masquerades as Congress. That he did so when he was barely 40 says something about his common sense, but a lot more about the older (but less mature) inmates with whom he must deal, including the President. He is doing so again today, and his voice, I hope, is being heard.

While polls indicate that Republicans have taken most of the heat for the impasse, both sides have proven intractable. Since the President was re-elected in 2012 as were 233 House Republicans, one can argue that both sides are acting out of principled conviction. But, as political commentator Michael Barone, recently wrote, “Clear majorities [of those polled] prefer that politicians compromise rather than stick to principles.” In response to a question by CNN/ORC as to whether the participants are acting like “spoiled children,” 69% said Republicans in Congress were and 47% said Mr. Obama was – as Mr. Barone noted, it was a slap at Republicans, but it was also a stunning revelation that almost half of all Americans concluded that a twice-elected President was behaving like a spoiled child, rather than a responsible adult. The never-ending quarreling between Mr. Obama, Mr. Reid and Mr. Boehner reminds me of an admonition from my father when I was growing up: “Never argue with a fool, for a passer-by will be unable to differentiate between the two.”

Paul Ryan, Republican Representative from Wisconsin’s first district and Republican nominee for Vice President in 2012, is known as a policy “wonk.” After losing his bid for Vice President – an event that seems much longer ago than eleven months – his name was expunged from news headlines and the front pages. Paul Ryan is (and always has been) an advocate for a “grand bargain,” which would require major tax and entitlement reform. In an op-ed in last week’s Wall Street Journal, “Here’s How We Can End the Stalemate,” Mr. Ryan laid out his view of the problems facing the country and his suggestions for resolution. He noted that the Congressional Budget Office (CBO) predicts discretionary spending – everything but entitlement programs and interest payments – will grow by 17% or $202 billion over the next ten years. During the same ten years, however, the CBO expects mandatory spending and interest expenses to expand by $1.6 trillion, or 79 percent. According to figures from the Office of Management and Budget (OMB), mandatory spending ten years ago was 55% of the budget and interest expenses were 7 percent. Today those numbers are, respectively, 60% and 6 percent. The OMB’s forecast is that ten years from now mandatory expenses will be 64% of the budget and interest costs will be 13 percent.

In his op-ed, Mr. Ryan proposed a middle road. He proposed embracing Mr. Obama’s plans to trim Medicare and Medicaid expenses, and suggested a means test that would have higher-earning seniors pay more for Medicare and to reduce taxpayer support for their Medigap plans. He suggested that federal employees contribute more to their retirement. He wrote of implementing pro-growth reforms that put people back to work, “like opening up America’s vast energy reserves to developments.” But he stressed: “This isn’t a grand bargain.” These are all modest proposals supported by the Bipartisan Policy Center and the Committee for a Responsible Budget. Let us hope they provide a framework for negotiations.

The conversation Mr. Ryan would like to have concerns the long term nature of our political system. Several years ago, Representative Ryan proposed a “Roadmap for America’s Future.” It included such widely acknowledged reforms: means testing for Social Security and raising the retirement age in incremental steps over several years. But it also included more controversial (though not to me) steps, including making people more responsible for their retirement and for reducing dependency on government. In April 2009, President Obama invited the Wisconsin Republican to a speech in which he planned to outline his vision for avoiding what seemed to be an on-coming fiscal/economic Armageddon. The invitation was seen as the extension of an olive branch, a gracious and cooperative presidential response to an individual who had worked hard on trying to bring reform to a difficult, but compelling problem. Instead, Mr. Obama skewered Mr. Ryan, who he had placed in the front row just steps from the podium. He mocked Mr. Ryan and his plan, telling his audience it would harm the elderly, the destitute and the chronically ill. The Democratic National Committee (DNC) picked up on the President’s words. A year later the DNC ran one of most mean-spirited and dishonest ads in American political history – depicting a Paul Ryan look-a-like dumping a wheelchair-bound grandmother off a cliff. The ad was despicable; it backfired. Republicans, in 2010, won back the House, picking up 63 House seats, the most for an “out” party since 1938.

Today, more than ever, structural reforms are needed. As Mr. Ryan wrote” “Just as a good investment gets higher returns through compound interest, structural reforms produce greater savings over time.” A sticking point is the phrase “over time.” It is difficult for Attention Deficit Deprived politicians to think beyond the next election, especially about reforms that may take years for savings to be realized.

Last Thursday, the New York Times ran an article by Jonathon Weisman, “Ryan is Again in the Forefront for the G.O.P.” He has emerged, according to Mr. Weisman, “as essential to its rescue.” Mr. Ryan’s new plan, “A Path to Prosperity,” Mr. Weisman wrote calls for a debt ceiling increase tied to changes to Medicare and Medigap plans, a fast track for the comprehensive simplification of the tax code, and a demand for immediate and structured negotiations with the White House and Democratic Senate. Importantly, the Times reporter noted, Mr. Ryan’s plan made no mention of ObamaCare.

Ideology has reached dangerous levels in Washington. Taking non-negotiable stances, whether by Tea Partiers or the President, is dangerous. However, a stubborn President is far more dangerous to our nation than is a cantankerous junior Senator from Texas. The President is the face of the nation to the rest of the world, and the world’s economy relies on confidence and faith that the United States will honor its commitments, especially those tied to interest payments. Default is not an option. Stocks traded higher on Thursday and Friday as rumors of negotiations circulated, but are slightly lower than they were in early August and mid-September, and less than two percent above where they were in the middle of May. Gridlock over the budget and debt ceiling saw consumer confidence fall 2.2 percentage points last week, to its lowest level since January.

Mr. Obama had said he will not negotiate over the debt ceiling, claiming such negotiations would be “unprecedented.” That his erroneous hyperbole, and he knows it. Mr. Reagan negotiated a debt ceiling with Democrats in 1985 and Bill Clinton did so with Republicans in 1997. In 2006, then Senator Obama railed against raising the debt ceiling. And just two years ago, Mr. Obama negotiated the current debt ceiling with House Republicans when he signed the Budget Control Act of 2011, the Bill which ultimately gave us the sequester. Negotiations imply conversations, with each side giving up something. When newspapers like the supposedly responsible Financial Times and the irresponsible New York Times urge the President to stay pat, they do the American people a disservice. In like manner, when media outlets on the Right urge Tea Partiers to remain pertinacious, they are in effect telling them to stay pig-headed. Both add gasoline to a combustible situation.

Ultimately, it is the balance between government mandates and individual freedom that is in question. No reasonable conservative believes that government is unimportant. No reasonable Leftist believes that individual rights are not sacrosanct. We would live in a state of chaos, without the modifying influence of government, and we would exist in despotic conditions should are rights be annihilated. We have laws that must be obeyed and rules to which we must adhere, and we must respect those with whom we disagree. Most American libertarians could not survive a state of anarchy, and neither could American Leftists survive under Communism. It is the search for the balance between personal responsibility and dependency that fuels these fights, and that is where Mr. Ryan appears – an adult voice amidst a schoolyard of juveniles.

My feelings are well known on this subject. I feel strongly that the path we are on risks leading us toward tyranny. Every time we cede some right to government, we give up some element of freedom. Incrementalism may not hurt until it’s too late. From a monetary perspective, it is not exceeding the debt limit that concerns me; I believe we will resolve that problem. It is the almost inevitable dollar depreciation that I worry about. But I recognize that we must all get along, and that negotiation and compromise are critical to keeping our republic. Is there a point when a tipping point is reached and then breached? At what point will we enter an extended period of rising interest rates? Is there a level of debt that is unsustainable? Is there such a thing as printing too many dollars? The answer to all four questions is, of course. But I don’t know where the tipping point is, or if we have entered a period of persistently rising rates. I don’t pretend to know what is too much debt or too many dollars. However, these are problems that will have to be faced. In the meantime, as long as our nation has those who are unafraid to disagree with consensus, whether from the Left or the Right and as long as their voices are not stilled, then I believe we are okay.

Mr. Ryan has shown a commonsensical (and civil) way toward compromise. I hope both parties will use it, at least, as a starting point. In his Journal op-ed, Mr. Ryan spoke of his efforts in 2011, with Oregon’s Democratic Senator Ron Wyden, to reform Medicare: “We had different perspectives, but we also had mutual trust. Neither of us had to betray his principles; all we had to do was put prudence ahead of pride.” Mr. Obama, Mr. Reid, and Mr. Boehner – are you listening? Do you care?

Friday, October 11, 2013

Thought of the Day
“Lobbyists – For Better or Worse, or Forever?”
October 11, 2013

“I am in this race to tell the corporate lobbyists that their days of setting the agenda in Washington are over.” So spoke Senator Barack Obama on November 10, 2007. He added, “Lobbyists won’t find a job in my White House.” The sentiment, while populist, was appealing to those of us who had grown cynical of Washington, money and the snollygosters that populate its regions.

It was a promise, however, that could never be kept – therefore uttered for purely political reasons. It thereby heightened an already elevated cynicism. Not only have lobbyists gone to work in the White House, their efforts in Congress are manifested in the length of two signature Congressional Bills enacted under the Obama Administration – both passed unilaterally and signed when Democrats controlled both Houses. Keep in mind, lobbying can be used against a bill, as well as for one. For example, a number of organizations have been made exempt from ObamaCare, due to lobbying efforts, and Congressional members (lobbying on their own behalf) will be provided subsidies to purchase healthcare – subsidies not available to the rest of us.

The President’s words, besides being fallacious, also suggested muzzling groups that have a Constitutional right to speak out. Nevertheless, the term “lobbyist” provokes an unclean sense. When uttered, the word makes one want to use mouthwash and soap one’s hands. However, lobbying is a perfectly honorable and ancient occupation, despite its association with corruption. The word derives from the room outside the main hall of London’s Parliament where influence peddlers gathered, button-holing members as they entered or exited. Our Constitution protects free speech, including the right to petition. The assumption was made, by James Madison, that countervailing factions (like lobbyists) would cancel one another out.

Nevertheless, candidate Obama was correct to point out what has become a revolving door – a few years on Capital Hill leads to million-dollar jobs on K Street. Examples abound.

Besides effecting legislation, lobbyists have observed the rule-making authority of the executive branch, especially the EPA, HHS and DOD. Interestingly, the unwelcome shutdown in Washington has a silver lining. In yesterday’s Wall Street Journal, an editorial noted that the government shutdown has demonstrably lessened the number of recordings in the Federal Register. They wrote that on September 30, the day before the shutdown, 401 new rules were recorded, including increased assessment rates for blueberry promotion. On October 9th, only six new rules were recorded. It suggests that perhaps the economy, other than lobbyists for industries like the raspberry producers, is being helped by the shutdown.

Lobbyists once were more common in the hallways and byways of state capitals. That was a time when political bosses held sway. The names resonate with our political past: “Boss” Tweed in New York, Tom Pendergast in Missouri and John Bailey in Connecticut. The decline of political machines, with their storied histories gave rise to a stronger federal government. Like a hunter chasing its prey, lobbyists moved out of Albany, Jefferson City and Hartford for the greener, more lucrative haunts of D.C.

Besides the dollars they lavish on those who represent us, lobbyists have brought intricacy and weight to our tax code and bills. The tax code’s complexity owes a great deal to special favors being shown large multi-national companies, the very wealthy and powerful friends of elected officials. When I was born, the tax code comprised a little more than 500 pages. Today it is almost 75,000 pages. I’m old, but not that old!

The number of pages in bills Congress enacts appears to be directly related to the growing influence of lobbyists. Consider the Affordable Care and Patient Protection Act (ObamaCare) and the Wall Street Reform and Consumer Protection Act (Dodd-Frank), the Obama Administration’s signature achievements. Their length is in large part due to exceptions and exemptions. One can compare those opuses with earlier, equally critical acts. The Federal Reserve Act of 1913 was 31 pages; Glass-Steagall, enacted in 1933, comprised all of 37 pages. The Interstate Banking Efficiency Act of 1994 included 61 pages and even Sarbanes-Oxley was only 66 pages in 2002. The Gramm-Leach-Bliley Act of 1999, which did away with Glass-Steagall, did so in 145 pages. In contrast, the Fact Checker at the Washington Post puts the number of pages for ObamaCare’s rules and regulations at about 10,000 pages. The very fact that their Fact Checker can’t be more precise is concerning. Dodd-Frank, which passed in 2009, has 398 rules of which only 280 have been written. Thus far, the bill has 848 pages, according to a front page article in Investor’s Business Daily, and we are only 70% through the process.

It is perfectly natural for individuals, businesses, unions and others to protect their interests and lobbyists are hired to do so. It is the amounts that are involved, the power they exert and the revolving-door nature of the business that seem wrong.

Ideally, I would like to see money removed from politics. But, also ideally, I would like to see my great-grandchildren married. Neither will happen. How can a democratic republic like ours muzzle one voice, but allow another? Who decides? There is no Solomon. Money seeps into politics the way the smell of a road-killed skunk stays with us in our car. Every time politicians have tried to remove money from politics – surprise, it doesn’t work! The McCain-Feingold Campaign Finance Reform Bill of 2002 gave rise to today’s political action committees (PACs.) Instead of less money and more transparency, we have more money and less transparency.

There are two answers that come to mind – neither wholly satisfactory by any means – to what seems an intractable problem that will only grow in size. The first is to let the sun shine on all donations to any political cause, whether to help finance a run for a seat on one’s local library board or a gift to the nation’s largest PAC. Knowledge as to who is giving what to whom will at least sterilize the money to some extent. Secondly, this represents a compelling reason to consider term limits. The less time members of Congress spend in Washington, the less powerful they are. And the less powerful they are, the less value they are to lobbyists. But, lobbyists, I’m afraid, are forever.

Wednesday, October 9, 2013

James M. Barrie used Neverland as a metaphor for those like Peter Pan who refuse to grow up – a place of eternal childhood. It reminds one of Washington’s denizens. It is especially fitting for a major problem that has been woefully ignored by the press and politicians – that is the coming poverty among senior citizens and the inadequacy of saving toward retirement. It is a problem that will get far worse before it gets better. Fault lies with all of us – government, business and consumers. But the principal villain is an attitude that celebrates consumption and self-approbation, while denigrating what had been an historic culture of thrift and industriousness. The cause of that cultural shift is important to an understanding as to how it might be reversed, if possible. Can a self-absorbed, consumer-based society, with an increasingly dependent people become one that values saving and work more than a trip to the mall and entitlements?

Falling interest rates over the past three decades conditioned people and businesses to a debt trap. We are thirty years into a bond market rally, of which borrowers, including consumers, have taken full advantage. According to the Securities Industry and Financial Markets Association (SIFMA), total outstanding U.S. bond market debt rose from $2.5 trillion in 1980 to $38.2 trillion at the end of 2012, a compounded annual growth rate (CAGR) of 8.8%. Credit creation is at the heart of capitalism. Without it, economies fail. However, that 8.8% annualized credit growth only produced a CAGR in GDP of 5.4% over the same thirty-two years. Growth in credit even exceeded growth in the S&P 500.

Hyman Minsky, author of Stabilizing an Unstable Economy, noted that capitalism is inherently unstable because long-term capital assets are often financed with short-term financing. One could make a corollary argument that individuals have financed consumption with long-term financing – credit card debt that gets extended out, and a proliferation of second and third mortgages. Thirty years of ever-lowered rates have had the insidious effect of inoculating individuals against the far more onerous effects of borrowing in what may prove to be a rising interest rate environment.

During the recent recession, consumers reduced their debt in the aggregate. Over the past five years, mortgage debt on one-to-four family residences declined from $10.9 trillion to $9.8 trillion. However, it has now begun rising again. Credit card debt is 16.9% below where it was in 2008, according to an article in yesterday’s New York Times, but total consumer borrowing, excluding mortgage debt, rose to a record $3.04 trillion as of August, driven by student loan and auto debt.

The immensity of the problem of poverty for retirees should not be underestimated. Seventy-eight million boomers began turning 65 two years ago. They are doing so at the rate of 10,000 a day, a process which will continue for eighteen years. They will join the 40 million Americans who are already over sixty-five. America is aging. During the decade 2000 to 2010, the population of the U.S. grew 10% from 281 million to 309 million. During that same decade, the over 65 segment grew at 15%, while baby-boomers increased 31 percent. It is expected that during the current decade those over 65 will increase 38% to 55 million, according to data from the U.S. Department of Health and Human Services – all a consequence of “boomers” aging and people living longer.

Very recent trends in elderly poverty are disturbing. Improvements in elderly poverty rates in the first few decades of the post-War period have stopped and begun to reverse. In 1960, the official poverty rate of those 65 and older was 35%. By 1995, it had fallen to 10%. Over the next decade and a half, the numbers drifted lower, hitting 9% in 2010. Credit for the positive change was ascribed to increased Social Security expenditures per capita and the post-War boom in defined benefit plans. However, as a New York Times editorial over the weekend noted, the numbers of seniors in poverty are creeping back up – 9.3% in 2011 and 9.5% in 2012. Barbara Novick, vice chairman of BlackRock, was quoted in the weekend’s Wall Street Journal: “We really see retirement as the next big financial crisis.” In my opinion, the numbers of elderly poor are likely to rise substantially in the years ahead.

Both of the earlier positive trends have reversed. Increases in Social Security expenditures per capita, according to a report prepared by the Department of Economics and Center for Policy Research at Syracuse University and the Department of Economics at MIT, began leveling out in the mid 1980s. A few years earlier, large public companies began switching workers from defined-benefit plans to defined-contribution ones. In 1989, according to the Urban Institute, 42% of private sector workers were enrolled in defined-benefit plans. Today, that number is about 20%, and about a quarter of those are in plans that have frozen out new employees, or no longer accrue benefits for participants. By 2012, 51% of all workers were with companies that offered defined contribution plans, such as 401(k)s. That would compare to 40% in 1989. Those numbers suggest that about 20% of all private sector workers have no plan, or more than 23 million people.

Defined benefit plans for public sector workers risk bankrupting municipalities. Thus, there days seem likely to end. Most states have substantial unfunded pension and healthcare liabilities. There are only two possible exit strategies – raising taxes or reducing payments. The first impedes economic growth. The latter harms the individuals affected. Detroit has already gone bankrupt. On Monday, Chicago’s Mayor Rahm Emanuel was quoted on Bloomberg: “The pension crisis is no longer around the corner. It has arrived at our schools.” In the eleven years since Michael Bloomberg became Mayor of New York, the city’s annual pension costs have risen 400 percent. Houston, we have a problem!

Even for too many of those that do have 401(k)s there is not enough money. Fifty-one percent of the full-time workforce in the private sector has 401(k)s, with total assets of $10.1 trillion, or $172,000 per worker. Given recent actuarial tables, those funds will have to last the average woman 21 years and the average man 18 years. Additionally, the dollar per person number overstates the actual, as some portion of the $10.1 trillion in retirement funds are owned by those already retired.

In the absence of a reversal in consumer behavior, which in my opinion is unlikely barring extreme duress or a crisis, this is a problem that Congress and the Administration need to address. Savings should be encouraged, especially among the young and middle-aged, (for the elderly it is probably too late.) And consumption should be constrained. The tax code could be used for both. A means test should be deployed for Social Security recipients. The amount of money one can set aside for IRA-type accounts should be raised. Taxes on investment income and capital gains, particularly for those in lower tax brackets, should be reduced. While I have never liked the concept of a value-added or consumption tax, as they are regressive, they should be considered for items other than food, clothing, shelter and healthcare.

Polarization in Washington has made the problem more inextricable. George Friedman of Stratfor blames this antithetical state on the collapse of the political “bosses” and the rise of ideologues. I believe there is a lot to his analysis. Strongly held, incompatible beliefs do not allow the kind of reasoned debate that is necessary for resolution. But I also suspect we are living in an Alfred E. Neuman, “What? Me worry?” world. Ignoring problems will not make them go away. Addressing the issue of poverty among the elderly, while unpleasant, is necessary. Individuals will have to assume more responsibility, which is not a bad thing over the longer term, but will do little to assuage immediate needs. In his most recent “Investment Outlook,” Bill Gross quotes that eminent economist who appears to have become the patron saint of today’s consumer, Jiminy Cricket. “Just wish it,” he says, “and it will come true.” It won’t.

Monday, October 7, 2013

The disputes in Congress over ObamaCare, a shutdown of government, and the upcoming fight over the debt ceiling have raised the intensity of feelings to levels not seen since the Civil War. Representative George Miller of California referred to Republican Tea Partiers as Jihadists. Senator Diane Feinstein, using sexually-explicit and offensive language, called Tea Partiers “tea-baggers.” President Obama has not been much more circumspect, suggesting renegade Republicans are putting “a gun to the head of the American people.” While civility should be common to all, it is the President, above all, who should set the tone. That is leadership. While the acrimony was more deeply felt 150 years ago than today, how different are the leaders. Mr. Obama, while claiming to be “cool,” expresses scorn for his opponents, using abusive and insulting language to describe their motives. Lincoln used humor and told allegorical stories to cajole and convert those who disagreed with him.

In his first inaugural, Abraham Lincoln was compassionate and conciliatory toward those on the other side. He recognized the importance of reconciliation: “Though passion may have strained, it must not break our bonds of affection.” Lincoln was described by Calvin Coolidge in 1923: “He showed to men their better selves. He had the power to bind together discordant elements. He reconciled differences.” Unlike Mr. Obama, Mr. Lincoln was unafraid to equip his Cabinet with those who disagreed with him. He enjoyed debate and personal interaction. Mr. Obama prefers televised, teleprompted speeches to adoring acolytes.

We should keep in mind that shutdowns are a regular part of our governing process. In the weekend edition of the Financial Times, former House Speaker Newt Gingrich noted that in the ten years he served as Speaker, Tip O’Neill presided over 12 government shutdowns – four when Carter was President and eight when Reagan was President.

Into this melee has jumped the New York Times’ premier and well-respected columnist, Thomas Friedman. Last Wednesday, he used (like Mr. Obama) the metaphoric “gun to the country’s head” to describe intransigent Republicans. He wrote, Mr. Obama must not give up “because the future of how we govern ourselves is at stake…our democracy is imperiled.” It is true that there is much at stake, but we are not a democracy; we are a republic, or perhaps a better definition would be a democratic republic.

The distinction goes to the crux of the disagreement. In a pure democracy, there are no constraints on government. The majority is omnipotent. It can impose its will on the minority with no fear of recourse. In a republic, the rights of the minority are protected, and the rule of law prevails. The founders were fearful of tyranny, whether it came from a despotic leader or an unrestrained majority. Additionally, our Constitution provided for the separation of powers, with each of the three branches being equal. Frustrating to political leaders, especially those with large majorities, a republic is not designed for efficiency. It is constructed to ensure the rights of the individual are not impaired and to protect the minority from what the framers saw as “the excesses of the majority.” An example would be the passage of ObamaCare in 2010, without a single opposition vote. It was an Act so long and convoluted, it was not understood by those passing it, as Nancy Pelosi so arrogantly stated at the time: “We have to pass it to see what’s in it.” Under a republic, the rule of law is sacrosanct and the individual is sovereign. In a democracy, the people (as a group) are sovereign and majority rules.

Today’s debate in Washington concerns disagreements over very fundamental views of our government. It is about determining what Washington can and cannot impose at will. It is about dependency versus responsibility. The debate we should be having is over the size and role of government. We should be discussing whether we are a democracy or a republic, or have we in fact, become a plutocracy? What is it that we expect from government? In 1887, President Grover Cleveland said that while the “people support the government, the government should not support the people.” Thirty-six year later, then Vice President Calvin Coolidge warned of the relentless and insidious voices who call for more government intervention under the guise of “general good.” Thirty-seven years later, in his inaugural, President Kennedy said: “Ask not what government can do for you, but what you can do for government.” Implicit in all their comments was the necessity for government, but that the servant should not become the master.

In contrast, Mr. Obama has determined he wants government to become omnipotent. He has refused to negotiate with Republicans over the government shutdown and the debt ceiling, accusing them (correctly) of partisanship, while (incorrectly) claiming to be unbiased and “calm.” In early 2009, during the debates over the stimulus, Congressman Eric Cantor (R-VA) allowed that there were going to be some ideological differences. Mr. Obama’s retort: “I won. So I think on that one, I trump you.” He had won, but that should not have meant that Mr. Cantor’s opinions should be ignored. We have a country where more than half the people pay no federal income tax and, according to an article published in the Washington Post a year ago, 49.1% of U.S. households have at least one person receiving benefits from the government. While many of the latter are the elderly, that 49% compares to 30% thirty years ago. It is the trend, and the obligations they entail, that worries anyone concerned about the future financial welfare of the nation. (In this regard, Niall Ferguson’s op-ed in the weekend Wall Street Journal should be required reading.) It was this rational fear of debt and future obligations that was the genesis of the Tea Party five years ago.

Friedman’s entire tone, in his Times op-ed, does him an injustice: “Lily-white Republicans,” the Supreme Court’s “inane decision” over Citizen’s United, “Rush Limbaugh told them so.” He equates Republican demands to the Mafia: “Give me the money and nobody gets hurt.” In response to his own question, “How did we get here?” he has all the expected answers – from gerrymandering to the Tea Party, from the Citizens United decision to talk-radio and, of course, Fox News. There is no mention of the false sanctimony of the New York Times, nor of any of the Left leaning network TV stations, nor CNN, MSNBC nor myriad other media outlets for the Left. He is either too exhausted or finds it inconvenient to write of the fundamental (and legitimate) differences between what people on the extreme right expect of their government and those on the far left. For a man who prefers to fly above the fray, Mr. Friedman has become nothing more than another soldier in the Obamaite Army of mainstream media, Hollywood, big corporations, union leaders and assorted billionaires. In my opinion, they risk taking us toward a “Life of Julia,” in which government will care for us from cradle to grave. It would be shock to all those Presidents cited above, and is dispiriting to anyone who values individual freedom. Readers deserve more from Tom Friedman.

Pure democracies, whether direct (like New England town meetings) or representational (like some early state governments and England’s Parliament), were seen as a threat. (It should be noted that minority citizens of New England villages are protected under their state and the federal constitutions. Even so, at those meetings the majority rules.) Thomas Jefferson, in his 1781-1782 “Notes on the State of Virginia,” wrote: “An elective despotism was not the government we fought for…” Mr. Jefferson’s concern was for the rights of individuals. Early state governments were pure democracies. However, in anticipation of or in response to Jefferson, in 1780 Massachusetts became the first Republic, adopting the first constitutionally limiting government. New Hampshire became the second, in 1784. Other states followed.

It is important to understand, and critical for those involved in and commenting on the current shutdown and the upcoming debt ceiling crisis, that the Constitution provided for a limited, not omnipotent, government. Over the decades and centuries our relationship with government has changed, with government assuming more and more responsibility, thereby increasing our dependency. Perhaps some of that change has been inevitable and possibly for the good, but it does little to help our understanding of the ideological differences between the Parties if all we hear is name calling and smears. We need to remember that the Tea Party and their message is far closer to the intent of the founders, than is the concept of a benevolent government that has taken at least partial responsibility for half of Americans.

In the second decade of the 21st Century it could well be that we must accept a more intrusive government. Even Reagan was unable to reverse the trend. What he did was to moderate the trajectory. We cannot go back to the late 18th Century. But it is imperative to understand the consequences of the path we are on – that government is the people. Government produces no goods, nor sells any services. Its revenues are taxes imposed on its citizens. Each benefit paid is funded through taxation on another person. A lot of the spending and much of regulation have desirable purposes, but each regulation carries with it a limiting factor. When we are told what foods we can eat, or drinks we can sip, or guns we may possess, or what fuels we can burn, or where we can build and where we cannot, or where we can drill, or what schools we must attend we lose some aspect of personal freedom. The purpose of society is to find the balance, pitting the needs of the whole against the wishes of the one. And it requires it done in an aura of civility. People have differing beliefs and ideologies. They always have. They always will. No one encountered greater differences than did Lincoln, yet he never belittled his opponents. He argued his points and made them with humor. In Saturday’s Wall Street Journal, Peggy Noonan quoted Reagan, another President who used humor, but was pragmatic: “I’d rather get 80% of what I want, than go over the cliff with my flag flying.”

I tire of those like Friedman, who see themselves as superior beings spouting wisdom from Mount Olympus, superciliously denigrating all those who disagree. Mr. Friedman failed to articulate the true nature of the rift that divides us; instead he drove deeper the wedge that splits us. His insistence that we are a democracy, that the will of the majority is sacrosanct falls into the trap of what Madison, Adams, Jefferson and Hamilton called “the Majority Omnipotent and Unlimited.” We have a republic, as Benjamin Franklin admonished the woman outside Independence Hall in 1787. The real question is, as Mr. Franklin added: can we keep it? Republicans need to understand they cannot get all they desire. They must also be willing to negotiate. And rules of civility need to be equally applied. But we also need a President who is unafraid to negotiate in good faith, who recognizes the power that is our democratic Republic, comprised of individuals living in a country where law is paramount – where the individual is sovereign and where minorities’ rights are protected.